Trade and Industry

This paper argues that adopting a “developmental regionalism” approach to trade integration provides the best prospects for the African Continental Free Trade Agreement (AfCFTA) to catalyse the process of transformative industrial development, cross-border investment and democracy, governance, peace and security in Africa. It also looks at the progress being made by African countries and the continent in implementing each of the four pillars of this approach.

This paper was written in celebration of the significant contribution to African integration made by Chief Olu Akinkugbe.

Dr Faizel Ismail also presented the Keynote Address at the Olu Akinkugbe Business Law In Africa Fellowship Conference held at the Lagos Business School on 28 November 2018.

South Africa’s motorcycle industry is waning while other emerging markets are expanding their production activity, usage and trade performance, and are developing integrated value chains for motorcycles. South Africa is a net importer of motorcycles and imports have been declining for the past five years. No local manufacturing is taking place and the domestic industry relies solely on imports. The industry is small in global terms with the number of registered motorcycles at around 366 000 units as of 2015, which is less than 1% of the global share and the number of new registrations is on the decline. The number of industry participants is also dwindling as more local dealers, distributors and importers of motorcycles close down operations.

One of the main reasons is a policy change that came into effect in 2013. This introduced more stringent requirements for the importation of motorcycles, which in turn reduced the number of establishments eligible to import motorcycles. The policy change has benefited the main original equipment manufacturers (OEMs) and their authorised agents and suppliers by eliminating competition from parallel importers, which are now forced to source their motorcycle stock domestically from the OEMs and their respective authorised suppliers. This has affected the profit margins of the parallel importers and resulted in many of them closing.

This brief illustrates how, in the debate between trade protectionism versus openness in industrial development, sometimes policy changes in the form of trade restrictions in a specific industry may lead to unintended consequences. These could have an adverse effect on the domestic industry and the overall economy.

This policy brief provides context for technical regulation in the region. It then offers some cross-cutting solutions for developing monitoring mechanisms that can allow policymakers to identify problem areas, and some specific interventions for the Standards, Accreditation and Metrology functions that can build capacity at low cost. It provides some recommendations for a practical agenda on reducing Technical Barriers to Trade in the Southern African Development Community – ones that can be executed with minimal cost, and that improve the institutional capacity of regional organisations to grapple with the complexity inherent to the field. Above all, these regulations will need to be carefully attuned to assure that they provide the maximum protection for the region from dangerous substandard imports, while still allowing for a dynamic, mutually beneficial trading relationship.

The African Growth and Opportunity Act (AGOA) is a non-reciprocal preferential trade programme that the US offers to 49 sub-Saharan African countries. President Obama's decision to extend AGOA, which was set to expire at the end of September 2015, for another 10 years (2015 to 2025), was highly controversial. The Extension and Enhancement of AGOA Act, signed into law by President Obama on the 29 June 2015, had thus included many new provisions to incorporate the views of the US Congress on the implementation of the 10-year extension and the future trajectory of AGOA.

In this paper, the Extension and Enhancement of AGOA Act is analysed to elucidate the new and additional powers that the new AGOA Act provides the US Congress, the US Administration, and US business lobbies, and the implications of these changes for sub-Saharan African countries. At least three new trends in the 2015 AGOA Act can be identified: payment for preferences, institutional attrition, and a shift to reciprocity. These trends, it is argued in this paper, are potentially contrary to a more mutually beneficial relationship between the US and Africa. The paper offers some reflections on the future of AGOA.

This paper argues that the dramatic changes in the trade architecture of the world during the first decade of the new millennium have created both opportunities and challenges for Africa’s development. African countries need to develop proactive strategies to harness these new changes and use them to advance the integration of the African continent.

The paper looks at the main elements of the changes in the global trade architecture in the first decade of the new millennium. It then explains how these changes impacted on the Doha Development Round. The shift to mega-regionals and mega-bilaterals by the major developed country players and the implications of these developments for Africa’s trade with the world are also briefly discussed. The paper then sets out the changes in the trade policies of the EU and the US on Africa in the new millennium and the implications of these policies for Africa’s economic development. The paper also discusses the role of China in the trade and economic development of Africa and looks at the unfolding regional integration strategy of African countries.

The importance of exporting to the US for any developing country cannot be downplayed. Exports to the largest economy in the world along with various support measures has been of cruciall importance to countries such as Japan and South Korea during their industrialisation, more recently for China. The Africa Growth and Opportunities Act (AGOA) recognises the potential benefits of the US market and is a mechanism to encourage African economies to export into that market. While AGOA is a unilateral agreement by the US it gives benefits to the recipient countries and also is a means to encourage investment by US firms into Africa. The potential to support industrial development is therefore significant and is part of the motivation to extend AGOA by 10 years. Outside of the oil exporters, South Africa is the largest exporter through AGOA. South Africa exports value added products including automotive components and vehicles through AGOA. The recently adopted AGOA, however, specifically required a review of South Africa, mainly as a result of the requirement for poultry and pork imports from the US into the country. The poultry issue has been resolved and a number of compromises reached. The threat of the provisions of the Act that could exclude South Africa still remain. The benefits of South Africa being part of AGOA are applicable to both South Africa and the US,; it is therefore desirable on the side of both countries to find the compromises that would enable that.

The TIPS paper to be presented also forms part of a research project undertaken for NEDLAC.

PRESENTERS:

Faizel Ismail: Dr Faizel Ismail is an Adjunct Professor at the UCT School of Economics and a TIPS Research Associate. He has previously been an advisor to the dti on International Trade and Special Envoy on the African Growth and Opportunity Act and served as the Ambassador Permanent Representative of South Africa to the WTO (2010-2014).

Malose Letsoalo: Malose is the Director of Americas Bilateral Trade Relations in the International Trade and Economic Development Division (ITED) of the Department of Trade and Industry (the dti).

Christopher Wood: Chris is a TIPS economist focusing on trade and industry policy. He previously worked as a researcher in economic diplomacy at the South African Institute of International Affairs.

Tinashe Kapuya: Tinashe is the head of international trade and investment intelligence at the Agricultural Business Chamber (Agbiz).

This paper reviews the state of play of the African regional integration agenda, inspired by the vision of the Abuja Treaty and Agenda 2063. It argues that the Continental Free Trade Area (CFTA) negotiators should adopt a “development integration” approach to ensure that the outcome of the CFTA benefits all its members. Towards this end, the CFTA negotiators should work on three parallel tracks: a) they must ensure that the architecture of regional integration is asymmetrical in favour of the Small, Vulnerable Economies (SVEs) and the Least Developed Countries (LDCs); b) they must prioritise the fullest participation of all Africa’s members in regional productive value chains that enhance Africa’s industrialisation; and c) they must facilitate the co-operation of member states towards the building of cross-border infrastructure. It is argued that this vision and agenda of the CFTA and Agenda 2063 provide Africa with a powerful negotiating mandate to drive the process of engagement between Africa and its main trading partners, multilaterally in the World Trade Organization (WTO) and bilaterally with the European Union (EU), United States (US), China and others.

Ten years is a very short time in the global economy, and by all accounts a decade is all that is left of the African Growth and Opportunity Act (AGOA). While the United States’ unilateral preferential access programme for Africa has been reauthorized three times since it began in 2000, it looks very unlikely to be extended beyond 2025.

This article looks at options and present three immediate interventions could prove useful.

What are the main changes in the global trading architecture over the past 15 years? How have these changes impacted on Africa’s economic development and the nature of trading relations between Africa and its traditional developed country partners, the European Union, the UK and the USA, and its main developing country partner, China? What are the implications of 'Brexit' - the UK's departure from the European Union - for Africa's trade? And how has the changing narrative of trade and trade integration impacted on Africa’s own strategy to integrate its market? This issue of Commonwealth Trade Hot Topics explores these questions and offers some policy recommendations for African policy-makers and trade negotiators.

Asia has been an important export market for South Africa’s trade-induced industrialisation strategy, China being the country’s main trading partner in that region. This case study explores the potential of increasing trade with other Asian countries such as Indonesia, rather than focussing mainly on China. The case study details potential opportunities for a range of South Africa’s manufactured products in the Indonesian market, as well as looking at some of the obstacles such as export competitiveness, tariffs, non-tariff barriers and anti-dumping measures, which have affected trade relations. It makes recommendations for ways to overcome these and deepen trade relations and investment cooperation.

Industrial development concerns have now become a priority focus in Africa. This is, in some measure, prompted by developments in commodities sectors, where the need for beneficiation of minerals and value addition of the continent's natural resources is enjoying priority focus. There is also recognition that a traditional trade and integration agenda that focuses predominantly on border issues to enhance market access, is not addressing Africa's fundamental challenges of lack of industrial capacity and diversity. In short, the capacity to produce tradeables competitively and the policy mix that will enhance this capacity, are very much occupying the minds of policymakers. The adoption of the Action Plan for Accelerated Industrial Development of Africa (AIDA) by the 10th African Union Assembly of Heads of State and Government in January 2008, is a continental policy response to these challenges. This paper focuses

on the regional aspects of industrial development and specifically, the role of the Southern African Development Community's (SADC) market integation agenda in supporting regional industrial development.

Technical regulations lay down compulsory requirements for product or service characteristics or their related processes and production methods. They have specific administrative provisions and conformity assessment requirements with which compliance is mandatory for safety, health, environmental control and consumer protection. The capacity to comply with international standards, norms and technical regulations underpins the potential for economic and industrial growth. Standards and conformity assessments are required to prevent the influx of substandard and injurious products into African markets and to improve the quality, and enhance potential access, of African products to export markets.

This policy brief examines the implications for regional integration that the strengthening of technical infrastructure capacity in African countries for metrology, standards, accreditation and conformity assessment and compliance could have for Africa's industrialisation efforts.

As vessels and seaports - conduits for international trade growth, serving over 90% of world commerce - ascend to ever greater significance in a cost-conscious world reeling from the aftermath of the 2008 global financial crisis, the concepts of port efficiency and productivity matter more and more, especially in configuring optimal port designs.

This paper attempts to illuminate this in considering the extent to which Durban's International Airport (DIA) and other port expansion/modernisation projects under consideration in ports throughout the world from Santos to Maputo, Bagamoyo, Singapore and Los Angeles, are really necessary. The alternative approach is to prioritise enhancing existing efficiency as a more feasible substitute. It seeks to outline the consequences of Durban's proposed port development for the current and DIA dugout port site as a prototype to determining the extent to which a proposed port expansion is really necessary, economically feasible or desirable from a key port user perspective. It summarises a UKZN Master's Dissertation. It does so through outlining a timeline of port developments including future plans, a projected demand-supply, cost benefit analysis, through identifying the potential port user requirements, constraints to existing efficiency and concerns. The economic, environmental, traffic and transport and other general consequences of the proposed port development along with possible recommendations and solutions are also outlined.

This paper falls under the TIPS Small Grant Research Papers initiative and is based on Jack Dryer's work for his masters thesis. Note, however, that the research pieces posted are not edited by TIPS but are the responsibility of the student and supervisor.

For more on this see TIPS Development Dialogue: Linking back of port operations to city development plans and supporting the growth of the marine engineering sector

Promoting exports to develop manufacturing remains a key growth strategy in the National Development Plan. Super-exporters dominate almost all South Africa's export sectors. They are the main drivers of export growth and they define the country's export structure. However, despite their dominance, super-exporters have been losing dynamism and competitiveness, with 93% of these firms not creating sufficient new high-value exports to replace those that died out during the global financial crisis. According to the World Bank, South Africa is exploiting only about 20% of its potential export relationships compared to China's and Germany's 70%. Smaller South African exporters are more experimental but are not yet large enough to drive aggregate exports.

This policy brief, compiled by TIPS Intern Blessing Chipanda, considers the policy implications in the face of dominance of South Africa's super exporters, levels of sophistication and size of their operations.

One of the major international economic developments in recent years has been the growth in regional trade agreements (RTAs). However, with the exception of a few, there are criticisms that RTAs have not yielded the expected benefits. The focus of this paper is to determine the impact of engaging in regional initiatives for two groupings comprising of developing and least developed countries from two different continents, namely MERCOSUR and SADC.

This research report was produced under the TIPS small grant scheme.

About the author

Anaïs Dangeot holds a First Class in her undergraduate studies in Banking and Finance at the University of Mauritius. She has recently completed her Masters in Social Protection Financing at the University of Mauritius with a distinction. During her Master's tenure, Anais has participated in a joint research project between the University of Mauritius and the University of Botswana. Miss Dangeot has also been working with the Economic Policy Research Institute (EPRI), in Cape Town. Finally, her research interests centres on areas which include public policy, poverty, deprivation analysis and broader social development issues.

Year2014

OrganisationTIPS

Publication Author(s)Anaïs Dangeot

Countries and RegionsMercosur (Common Market of the South), Southern African Development Community (SADC)

Intra-Industry trade (henceforth IIT) has generally been perceived to be a feature of the industrialized countries. As the past few years have seen a rapid increase in Zambia's trade with its trading partners in the SADC, trade statistics reveal that a substantial part of such intra-SADC trade is in fact of the IIT form. This study seeks to establish the extent of IIT between Zambia and its trading partners in the SADC region and to identify the determinants of IIT at this level.

Using a modified gravity model in a panel data framework for the 1998-2006 period, the estimation results from the Feasible Generalized Least Squares in the random effects model evaluates the existence of IIT between Zambia and its trading partners in the SADC. The empirical results reveal that gross domestic product, dissimilarities in per capita income, transportation costs (distance and common border) and colonial ties (common language) are significant factors explaining IIT between Zambia and its trading partners in the SADC. The results also reveal that IIT between Zambia and its trading partners in the SADC is positively determined by GDP, distance, and dummies for common border and common language while dissimilarities in per capita income (DPCI) depresses it.

Year2012

OrganisationTIPS

Publication Author(s)Chonzi Mulenga

Countries and RegionsSouthern African Development Community (SADC), Zambia

This paper investigates the potential to harness trade finance to foster the development of a green economy in developing countries.

The world is facing multiple crises of sustainability: global financial crisis, climate change, and the overuse of natural resources. Many developing countries are additionally destabilized by poverty, disease, corruption, and failures in democratic governance and education.

The transition to a green economy is recognised by a variety of organizations and experts as a ground-breaking way forward, combining economic development, social welfare and environmental protection. In order to shift to a green economy, changes in production and consumption practices, and therefore also in trade patterns, are crucial. This makes the leverage power of leading export credit agencies, which totalled an exposure of USD 1.7 trillion in 2011, colossal.

Geographical Indications are goods that derive the uniqueness of their quality from the region where they originate. Provision for protection of such goods is provided for in the TRIPS Agreement among WTO member countries. This policy brief looks at some international examples where goods have been protected based on a Geographical Indication status in attempting to draw out some lessons on the costs and benefits of protecting goods with this status, and whether such a regime should be introduced in South Africa.

We look at how trade liberalisation, working through product prices, has affected the skill premium in South Africa over the period 1990-2009. Our main finding is that trade liberalisation led to a reduction in prices over this period, and, through prices, mandated a rise in the skill premium of 3.3%. The structure of the skill premium did not stay constant over the period. In the sub-period 1990-1999, trade liberalisation mandated a fall in the skill premium of 10.6% and in the sub-period 2000-2009, trade liberalisation mandated a rise in the skill premium of 11.6%. Our main results are consistent with the sector bias of tariff cuts over these periods, however they do not pass some of the robustness checks that we perform.

About the Authors:

Jeffrey Mashiane

In progress

Supervisor, Larence Edwards: Lawrence Edwards is an Associate Professor in the School of Economics, University of Cape Town. Lawrence graduated with a MSc in Economics from the London School of Economics in 1998. He completed his PhD in Economics at the University of Cape Town in 2003.

Lawrence's research falls within the field of international trade with a specific focus on international trade and labour, the determinants of trade flows and economic adjustments to trade liberalisation. He has published in a number of international and local journals including World Development, Journal of International Development, South African Journal of Economics and Journal of Studies in Economics and Econometrics. He has also consulted widely with the World Bank, the National Treasury, the Department of Trade and Industry and is currently a member of the South African Growth Project managed by the Centre of International Development at Harvard University.